Republicans' top tax-writer in the House of Representatives warned Friday morning that the rush of companies moving their headquarters out of the U.S. for tax purposes might surge in 2016, suggesting that up to 30 could leave.
Rep. Kevin Brady, the Texas chairman of the Ways and Means Committee, during a conference in Washington drew attention to the problem by calling for reform to the international taxation of U.S. companies.
"We will send a clear signal to American companies and shareholders that help is on the way — that we won't stand idly by while our tax code drives them overseas or makes them a target for a foreign takeover," Brady pledged.
He noted the surge in corporate "inversions," which are tax maneuvers in which a U.S. multinational company purchases a business in a low-tax jurisdiction, and then moves the headquarters of the combined company to the low-tax country.
The number of inversions taking place has grown from two a year over a decade ago, to four a year through 2014, to six in 2015, Brady noted. Then he warned that the three that took place in January might turn into 30 this year.
Inversions, as well as foreign takeovers of U.S. companies, are thought to be driven by the U.S. tax code. Unusual for an advanced nation, the U.S. taxes companies on all the income they earn worldwide, and does so at a 35 percent rate, the highest among developed countries. Companies have to pay domestic taxes no matter what, but they can lower their worldwide taxes by placing their headquarters elsewhere, even if they don't move actual business operations.
To counter the threat of companies moving overseas, Brady said, his committee "will move forward immediately" drafting international tax reform, ahead of a broader comprehensive tax reform effort he's planning for 2017.
The Obama administration, which has tried to curb inversions unilaterally using tax rules, signaled that it was open to international tax reform in the budget proposal it released this week.
Senate Majority Leader Mitch McConnell, however, has been cool to recent efforts to find agreement between Republicans and Democrats on international tax reform.
One major disagreement between the parties that could slow any efforts toward international tax reform relates to the revenue that would be raised. Currently, U.S. businesses have more than $2 trillion in earnings held overseas to avoid paying taxes when it is repatriated. That money would be subject to a one-time repatriation tax in most of the reform plans being considered. Democrats have said the revenue should be dedicated to infrastructure spending, while Republicans generally disagree.